Gas prices in Europe fall on modest demand and high supply. Meanwhile, the call to reduce dependence on Russian gas grows louder. Efficiency and innovation are most promising in the short term.
Europe has to make a choice for the near future
Hans van Cleef Senior Sector Economist Energy
Gas prices in Europe continue to fall
The conflict between Russia and Ukraine has only had a short-lived effect on gas prices in Europe. These developments have not had a serious impact on gas supplies to Europe. Prices on the spot market only rose by around 10% -- an increase which was neutralised in the following weeks. The TTF gas price, for instance, even hit its lowest point since 2010. Falling prices are the result of modest demand for gas due to mild weather combined with high supply. Only when temperatures rise enough to drive up the demand for cooling will prices go up significantly.
Greater need for alternatives to Russian energy
Russia’s annexation of Crimea and the resulting sanctions have swelled Europe’s cry for less dependence on Russian energy. There are alternatives to Russian gas, but these are problematic in the short term: they are either pricey or environmentally unfriendly. Until these issues are resolved, Europe will remain dependent on Russian gas.
Choices for the short term
ABN AMRO believes that LNG (liquefied natural gas) is the most logical alternative, but it requires the infrastructure in Europe to be adapted. Plus which, global production capacity is insufficient and LNG is much more expensive than Russian gas. Coal, on the other hand, is very inexpensive and widely available, but this form of energy would push Europe back in meeting its carbon reduction goals. Nuclear energy, meanwhile, does not involve CO2 emissions and is dirt cheap – but it is socially undesirable. Renewable energy could offer a solution, but only in the long term, as extremely long project lead times make it impossible to generate extra capacity quickly. The upshot, according to ABN AMRO, is that Europe has to make a choice for the near future. ABN AMRO expects that investing in energy efficiency and innovation to promote renewable energy sources will yield the best results, both in the long term and the short term.